Truck driver outsourcing on the upswing ... for now

The first thing to know about the concept of truck driver outsourcing is that it is not—pardon the pun—reinventing the wheel.

The practice of so-called driver leasing is commonplace in the world of warehouses and distribution centers. And the flex-staffing model has long been standard operating procedure in many other industries.

But in the trucking business, where old habits are hard to break and where procedures governing manager-driver relations are deeply ingrained, flex staffing is hardly mainstream stuff. In an industry where labor can account for up to 70 percent of a firm's operating costs and where companies are leaving no stone unturned in their quest for greater efficiencies, however, applying the "variable cost" model to the economics of the driver workforce may be an idea whose time has come.

"We're getting our foot in the door more frequently today than we were five years ago," says David Broom, CEO of TransForce Inc., a transport staffing firm based in Springfield, Va.

ProDrivers, a unit of Atlanta-based staffing company Employbridge, shares that optimism. "The case for driver outsourcing has never been stronger than it is today," says CEO Chip Grissom.

Under the outsourcing model, the staffing firms, not their customers, keep drivers on the payroll and meet all related expense and benefit obligations. They, not their customers, absorb such potential liabilities as workers' compensation, unemployment costs, and wrongful termination claims. They may not train the drivers, but they ensure the drivers they hire are trained and in compliance with all applicable regulations. They can quickly dispatch drivers in an emergency, or they can supplement a customer's in-house workforce with "dedicated" drivers who behave like full-time employees but are paid by the staffing firm.

Proponents say the savings can be big. In a white paper released earlier this year discussing the trend, ProDrivers laid out three scenarios involving an actual customer with a 52-person driver workforce. The first scenario utilizes 50 company drivers and two "supplemental" or seasonal drivers. The second has 40 company drivers, 10 "dedicated" or full-time equivalents, and two supplemental drivers. The third is a "contract insourced" relationship where all 52 drivers are ProDrivers' employees.

The cost savings ranged from 2 to 12 percent for the first scenario, 7 to 16 percent for the second, and up to 20 percent for the third, according to the white paper. Grissom acknowledges the company's projections are often met with skepticism from prospective customers. He says, however, that ProDrivers can prove that the savings are there, depending on the specifics of a customer's situation.

A blip on the radar
To be sure, the approximately 2,500 drivers on the two firms' collective payrolls are a blip on the radar screen of an estimated 3.4 million Americans holding commercial driver's licenses for all vehicle types. And it would be a stretch to say that many for-hire motor carriers are embracing the idea of outsourcing their driver pool.

"From the executives I speak with, I do not hear a lot of attention being directed at this issue," says Bruce Jones, president of KSM Transport Advisors LLC, which provides financial advisory services to mid-sized truckload carriers.

Jones says most truckers understand the "inherent limitations" of managing non-employee drivers and as a result, have robust driver recruitment and retention processes already in place. He also doubts whether efficiency initiatives such as outsourcing, which may gain popularity in weak economic times, will endure when conditions improve and freight volumes pick up.

According to Grissom, management's loyalty to its in-house drivers is the main reason companies do not pursue outsourcing. Other factors, he says, are the perceptions of loss of operational control and that drivers employed by staffing firms are less qualified and reliable than their counterparts at the carriers.

Driver staffing firms say their drivers are as qualified and as reliable as those working for trucking firms. Jeremy Reymer, president and CEO of Driving Ambition Inc., an Indianapolis-based driver staffing firm serving Indiana and Ohio, says he requires at least two years of verifiable experience, and that no driver can have more than two accidents or two moving violations in the past three years. In Indianapolis, the company's main market, there were only six "no-show, no-call incidents" (where a driver fails to show up without an explanatory phone call) out of nearly 11,000 dispatches in 2008, according to Reymer.
Grissom says ProDrivers strives to create a positive working environment for drivers, keeps customers fully informed about driver performance, and ensures that its drivers are of the same quality as those who work directly for their carriers.

Broom of TransForce stresses the stability of his own workforce to counter concerns about driver reliability. "We've had drivers employed here since 1991," he says.

Broom adds that one of his main challenges has been educating companies on the "true cost" of keeping drivers on payroll. "A company may pay $15 an hour (in base wages) for a driver and then we come in at $24 an hour," he says. "They don't understand what's involved with the $24 an hour." He says the $9 differential covers the "soft" costs of employment and payroll expenses, health insurance, vacation pay, and the convenience, flexibility, and peace of mind of knowing a support system is in place to supply them with drivers as needed.

A success story
One operation that doesn't have to be educated is Ryder Integrated Logistics' Phoenix facility, which provides third-partly logistics (3PL) support to Ford Motor Co. After some internal debate, the facility in 2002 opted to use ProDrivers rather than put drivers on payroll to serve the facility. "We decided to give it a year, to play it by ear and see if it would work," says Erin Holmes, Ryder's customer logistics manager at the facility.

Ryder has been very satisfied with the relationship, according to Holmes. The ProDrivers operation is transparent to Ford, and there hasn't been a safety issue in two years. And while the ProDrivers wages are not necessarily lower than what Ryder would pay, the ancillary savings—especially in the workers' compensation area—are significant, she says.
For ProDrivers, which generates about 70 percent of its business from the so-called seasonal category, the next objective, according to Grissom, is to expand into more strategic relationships, where drivers are deeply embedded in its customers' operations. Virtually all ProDrivers customers are 3PLs and private fleets, though the company is eliciting some interest from the for-hire category, he says.

TransForce doesn't have those issues. As much as 65 percent of its business comes from strategic, long-term contracts, with for-hire truckers accounting for about one-quarter of its customer base, according to CEO Broom.

Staffing firms are confident about their prospects, no matter how the economic winds blow. On one hand, they say, many drivers like the freedom and flexibility of not being tethered to one trucker, and their drivers feel they are treated better with them than when they were payroll employees. On the other, as companies downsize their internal recruitment and human resource staffs, they will increasingly turn to outside partners to deliver services that had been performed in house, they contend.

And what happens when the economy recovers, freight volumes build, now-idled capacity returns to the road, and the old driver-shortage bugaboo returns?

The staffing firms appear unconcerned. As they see it, their services will remain in demand as truckers, private fleets, and 3PLs scramble for drivers. "We had driver shortages from 2004 to 2006, and we doubled our business during that time," says Mike Mitchell, area vice president for ProDrivers.

We could all use some positive news and thankfully we have some for you: Many signs are showing that the freight markets are starting to recover.
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